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BLUE CROSS ABANDONS MERGER PLANS AFTER DOJ THREATENS LAWSUIT
On March 8, 2010, Blue Cross Blue Shield of Michigan’s (Blue Cross-Michigan) subsidiary, Blue Care Networks of Michigan, abandoned its attempt to purchase Physicians Health Plan of Mid-Michigan (PHP) after the Department of Justice and the Michigan Attorney General informed the companies that they would file an antitrust lawsuit to block the acquisition.
The Antitrust Division was concerned that, had the acquisition been consummated, it would have given Blue Cross-Michigan control of nearly 90 percent of the commercial health insurance market in the Lansing, Michigan area, which would have resulted in higher prices, fewer choices, and a reduction in the quality of commercial health insurance plans purchased by Lansing area residents and their employers. The acquisition also would have given Blue Cross-Michigan monopsony power as the buyer of physician services or the ability to control physician reimbursement rates in a manner that could harm the quality of health care delivered to consumers.
Blue Cross-Michigan and PHP are the two largest providers of commercial health insurance in the Lansing area. Blue Cross-Michigan has almost a 70 percent market share in Lansing, and PHP is its largest competitor with approximately a 20 percent market share. PHP is owned by Sparrow Health Systems Inc., the largest hospital system in Lansing. Competition between the two companies has led them to offer lower prices, better service, and more innovative products to employers and their employees. The acquisition would have ended this healthy competition.
The DOJ’s challenge to this transaction demonstrates its commitment to scrutinize health insurance mergers closely and to challenge transactions that it believes may result in anticompetitive effects both in the relevant health insurance markets and the markets for physician services. Parties to future health insurance mergers should expect similar scrutiny to be applied to their transactions.
Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com